Advanced Savings Strategies
Understanding the basics of a 401(k), ensure you are creating dedicated tax-savings for your future self. He or she will thank you! What you might not know is that a 401(k) isn’t the only tax-free savings opportunity on the market. On top of that, combining your 401(k) investing strategies with an HSA (health savings account), will create a fast-track to maximizing the flexibility of your short and long-term savings.
Let’s do a quick HSA review of the basics and then dive into more advanced savings and investing topics.
HSA-eligible individuals can contribute the following in 2018, under IRS tax regulations:
- $3,450 for individuals
- $6,900 for families
These funds can be saved, spent, or invested, all 100% tax-free.
Getting down to brass-tax what is the value of an HSA?
- Triple Tax-Advantages – HSAs enable tax-free contributions, growth, and distributions. These are unparalleled 100% tax-free savings and spending (as long as you use it for qualified out-of-pocket medical expenses).
- No Taxes, Ever* – Sorry, we need to re-iterate the point above. If HSA funds are used for medical expenses, you never pay taxes on those funds, regardless of income. There is no other tax account like this on the market. With out-of-pocket healthcare costs averaging $10,000/year that means an additional $2,500 in savings each year (assumes combined federal and state income taxes of 25% or more) (*A few US states do tax HSA expenses, please contact your tax or financial advisor to learn more).
- Long-Term Health Savings – HSAs are the only dedicated health savings that last year over year. Unlike a Flexible Spending Account (FSA), which expire each year, you can save and grow your HSA funds for health cost this year and well into retirement.
Don’t get hung up on which HSA benefits appeals the most to you. As you move through different lifestyle and healthcare cost requirements, you can use the robust tax structure of an HSA to your advantage.
HSAs and 401(k)s: Advanced Savings Strategies
Combing the tax opportunities of an HSA and 401(k) create saving and investing power never seen before.
One clear disadvantage of a 401(k) is that those tax-free funds and growth are locked until the age of 59 and 1/2 (unless you are willing to pay early withdraw fees). This ensures those funds will be available in the future, but not for unexpected expenses today.
HSAs can be used today or tomorrow or 20 years from now. Their tax structure allows you to withdraw tax-free funds for health expenses. You can balance those yearly withdraws with long-term savings and investments. HSAs adds much-needed flexibility to your savings and investment portfolio.
Adding an HSA to your savings strategy, with things like a 401(k) that are already in place, will only create more. More savings. More investment opportunities. More flexibility. More tax-free dollars.
Don’t settle for siloed saving strategies. Combine the tax-advantages of multiple savings accounts, like a 401(k) and HSA, to keep and invest more of your money. Your future self will not only be wealthier, but healthier!